Municipalities Favor Energy Performance Contracts

The city of Brea, Calif., installed high-efficiency lighting in 14 city buildings and 4,000 street lamps, it updated heating and cooling systems at six buildings and it installed 1.8 MW of solar panels at three sites, and now the city is seeing energy savings in excess of 40 percent, according to The New York Times.The city funded the upgrades through an energy-savings performance contract with Chevron Energy Solutions, a unit of the Chevron Corporation, which performed all the work.

The project was completed in 2011 and is exceeding the predicted 40 percent savings on energy costs. In addition to the cost benefits, Brea gets to pocket the excess savings above the 40 percent. The municipality plans to use the extra money to pay off two bonds issued to finance the project.

The performance-based model for these kinds of energy savings projects is becoming increasingly popular with government agencies. Money wasted on energy bills can be redirected to pay for the capital cost of an improvement.

According to the National Association of Energy Service Companies, about 35 large energy service companies dominate the market for these kinds of contracts, and 80 to 90 percent of their revenues come from government entities. The Energy Policy Act of 1992 paved the way for public agencies to establish long-term agreements with vendors. Since 1998, 25 federal agencies have used performance contracts on about 580 projects, according to the Federal Energy Management Program.

Pike Research estimates the energy services market to grow annually by 11 to 14 percent, reaching as much as $16.5 billion by 2020.